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Last Updated : Dec 10, 2016 01:45 PM IST | Source: Moneycontrol.com

Oct IIP falls 1.9%; road-bumps ahead as cash ban hurt spending

Factory output could get worse in the coming months with households putting off purchases and companies deferring investment hit by an economy-wide cash-crunch following the unexpected ban on Rs 500 and Rs 1,000 currency notes.


India’s factory output fell 1.9 percent in October compared to a growth of 0.7 percent in the previous month — signs that festive season shopping have failed to trigger an industrial revival — data released on Friday showed.


It could get worse in the coming months with households putting off purchases and companies deferring investment hit by an economy-wide cash-crunch following the unexpected ban on Rs 500 and Rs 1000 currency notes.


The string of holidays in October where factories have remained shut could also partly explain fall in industrial output during the month.

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Latest data showed that consumer durables output grew 0.2 percent in October from a growth of 14 percent in the previous month, an unexpected slowdown given that TV and refrigerator sales usually peak during the Diwali month.


Consumer durables output and sales could slowdown even more in the coming few months following the scrapping of high denomination currency notes and the limit on daily and weekly cash withdrawals.


The ban will also upset families’ spending plans on cars, televisions and refrigerators that peak during the wedding  season during October-March.


According to the recently released national income data for private final consumption expenditure (PFCE) during July-September at constant 2011-12 prices—a scale to measure household spending—was estimated at Rs 16.2 lakh crore, or about 54.9 percent of the gross domestic product (GDP).


Consumer spending as measured by PFCE grew 7.6 percent in July-September over the same quarter in 2015-16.


The 'manufacturing’ sector, which represents more than 75 percent of the index of industrial production (IIP), fell 2.4 percent in October from a 1 percent growth in the previous month.


Mining production growth slumped 1.1 percent during the month, only slightly better than September’s -3 percent.


Moreover, capital goods output, a metric to gauge capacity additions by companies, have contracted for 12 successive months mirroring faltering investment activity.


It fell 25.9 percent in October compared to 22 percent in September.



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First Published on Dec 9, 2016 06:05 pm
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